Jack's Magic

A massive $9.4 billion underfunding of reinsurance reserves probably inflated General Electric's earnings from 1997 to 2001, when Jack Welch was in charge. Successor Jeffrey Immelt is stuck with the clean-up. And so are GE shareholders.

JACK WELCH, GENERAL ELECTRIC'S DEMANDING former chief executive, delighted in setting the bar high. When he stepped down a few days before Sept. 11, 2001, he left his successor, Jeffrey Immelt, the challenge of matching a remarkable string of years of strong profit growth.

What was most remarkable about those years, however, wasn't apparent to anyone outside the company until recently. The bar might have been set artificially...